Cannabis Rescheduling in 2025: Expert Insights on Federal Policy Changes

The Cannabis industry stands at a pivotal crossroads in 2025. With federal rescheduling proceedings facing unexpected delays and a new administration settling into office, Cannabis businesses and their accountants face significant uncertainty about the regulatory landscape ahead. Understanding these complex policy developments is essential for Cannabis businesses to navigate compliance requirements and prepare for potential changes that could dramatically impact their operations and tax obligations.

In this comprehensive analysis, we explore the current state of Cannabis rescheduling efforts, examine the political dynamics at play in Washington, and provide strategic guidance for Cannabis businesses and their financial advisors during this transitional period.

The Long Road to Rescheduling: How We Got Here

Since the passage of the Controlled Substances Act in 1970, Cannabis has been classified as a Schedule I substance—a category reserved for drugs with "no accepted medical use" and "high potential for abuse." This classification has placed Cannabis in the same category as heroin and LSD, despite mounting scientific evidence of its medicinal benefits and moderate risk profile.

The Biden administration initiated a scientific review of Cannabis scheduling in 2022, directing the Department of Health and Human Services (HHS) to evaluate whether Cannabis belonged in Schedule I. After conducting a comprehensive analysis, HHS recommended in 2023 that Cannabis be reclassified as a Schedule III substance, acknowledging its legitimate medical applications and relatively lower abuse potential compared to Schedule I and II substances.

This recommendation represented a monumental shift in federal policy. Schedule III substances, which include medications like Tylenol with codeine and ketamine, are recognized as having medical value while still maintaining certain controls. For Cannabis businesses, this reclassification would deliver significant benefits—most notably the elimination of the punitive Section 280E tax provision that currently prevents Cannabis businesses from deducting ordinary business expenses.

"This isn't just about rescheduling—it's about undoing decades of prohibition policy and replacing it with sensible regulations that allow a flourishing industry," explains Aaron Smith, co-founder and CEO of the National Cannabis Industry Association (NCIA). "While full federal legalization remains the ultimate goal, rescheduling to Schedule III would represent the most significant federal Cannabis reform since prohibition began."

The December 2nd Hearing and Unexpected Complications

The Drug Enforcement Administration (DEA) initiated formal proceedings to consider HHS's recommendation, scheduling administrative hearings that began on December 2, 2024. These hearings were to be presided over by an administrative law judge who would make a non-binding recommendation to the DEA administrator on whether to proceed with rescheduling.

In an unprecedented development, the DEA—which historically has resisted Cannabis reform—positioned itself as the proponent of rescheduling during these proceedings, with opponents having the burden to demonstrate why Cannabis should remain in Schedule I.

However, what should have been a straightforward process took a complex turn when certain pro-annabis entities, including Village Farms and veterans' advocacy groups, filed motions to stay the proceedings. These organizations alleged improper communications between the DEA and prohibitionist groups like Smart Approaches to Marijuana (SAM), and questioned whether the DEA was genuinely committed to rescheduling despite its stated position.

"These hearings have been indefinitely postponed following the stay," Smith notes. "From our perspective, this was an unfortunate and misguided strategy. The judge was clearly indicating that these proceedings could move forward efficiently, but now we're looking at significant delays that could extend for months."

The stay raises serious questions about the timeline for rescheduling, especially with the transition to a new administration. While the previous attorney general had personally signed the proposed rule to reschedule Cannabis—an unusual step indicating high-level political support—the appointment of new leadership at the Department of Justice and DEA creates additional uncertainty.

The Trump Administration's Approach to Cannabis Policy

With Donald Trump's return to the White House and his nomination of key cabinet officials, Cannabis industry stakeholders are closely analyzing potential policy directions. During his campaign, Trump expressed support for state-level Cannabis legalization efforts and hinted at potential federal reform.

The critical appointments to watch include:

1. RFK Jr. as Secretary of Health and Human Services – Kennedy has historically supported Cannabis reform but has indicated he would defer to the DEA on rescheduling decisions, despite HHS having conducted the scientific evaluation that recommended rescheduling.
2. Pam Bondi as Attorney General – As Florida's former attorney general, Bondi opposed a state constitutional amendment to expand medical Cannabis access, calling the measure's wording "misleading." Her position on federal Cannabis policy remains unclear.
3. DEA Administrator – This pending appointment will be crucial, as the DEA retains significant authority over the rescheduling process and could potentially delay or accelerate the administrative proceedings.

"While Cannabis may not be a top priority for the new administration, there are reasons for cautious optimism," Smith observes. "President Trump understands this is a multi-billion dollar industry with strong public support, particularly among demographics that were important to his electoral coalition. There's political advantage in moving forward with reform."

The administration's approach to Cannabis could mirror its handling of other policy areas, with the president delegating authority to cabinet secretaries to develop and implement policies in their respective domains. For Cannabis, this likely means RFK Jr. at HHS will have significant influence over the federal government's approach to medical Cannabis.

Potential Pathways Forward for Federal Cannabis Reform

Several potential pathways exist for Cannabis policy reform in 2025:

1. Administrative Rescheduling

The most immediate pathway remains the DEA's administrative process. Once the stay on proceedings is resolved, hearings could resume, leading to a recommendation from the administrative law judge and ultimately a decision by the DEA administrator.

"The president has the authority to direct the DEA to reschedule Cannabis," Smith explains. "While this would require navigating institutional resistance within the agency, clear direction from the White House could accelerate the process significantly."

2. Congressional Action

With Republicans controlling both chambers of Congress, Cannabis legislation faces a challenging environment. However, bipartisan support exists for certain reforms, particularly around banking access.

"Look for Cannabis provisions to be attached to larger legislative vehicles rather than standalone bills," Smith advises. "The Senate Banking Committee has already held hearings on 'debanking' where Cannabis banking issues were raised. These entry points provide opportunities to advance incremental reforms."

3. Executive Action

While less likely, the president has the authority to direct sweeping changes through executive action. "The administration could theoretically direct the DEA to remove Cannabis from the Controlled Substances Act altogether," Smith notes. "While this would create a regulatory vacuum that might necessitate congressional action, it would immediately end federal prohibition."

4. State-Level Momentum

Regardless of federal developments, state-level legalization continues to expand. Ohio and Minnesota are implementing adult-use Cannabis markets in 2025, joining the growing number of states with regulated Cannabis programs. This expanding state-level framework continues to increase pressure for federal reform.

Financial Implications for Cannabis Businesses

For Cannabis businesses and their financial advisors, the potential rescheduling presents significant implications:

1. Section 280E Relief

The most immediate benefit of rescheduling would be relief from Section 280E of the Internal Revenue Code, which prohibits businesses trafficking in Schedule I or II substances from deducting ordinary business expenses. This provision creates effective tax rates of 60-70% for many Cannabis operations.

"Rescheduling to Schedule III would allow Cannabis businesses to deduct normal business expenses like any other industry," explains Andrew Hunzicker, CPA and Cannabis accounting specialist. "This would dramatically improve cash flow and profitability across the sector."

2. Banking and Financial Services

While rescheduling alone wouldn't completely resolve banking challenges, it would reduce the risk profile for financial institutions serving Cannabis businesses, potentially expanding access to banking services, loans, and merchant processing.

3. Capital Markets and Investment

The regulatory certainty provided by rescheduling would likely attract significant new investment into the Cannabis sector. Public Cannabis companies would benefit from reduced compliance costs and improved profitability, potentially driving valuations higher.

4. Compliance Requirements

Even with rescheduling, Cannabis would remain a controlled substance with specific regulatory requirements. Businesses would need to adapt their compliance programs to any new federal frameworks that emerge alongside rescheduling.

Strategic Recommendations for Cannabis Businesses in 2025

Given the uncertain policy environment, Cannabis businesses and their accountants should consider the following strategic approaches:

1. Prepare for Multiple Scenarios

Develop contingency plans for different potential outcomes, including:

• Successful rescheduling to Schedule III
• Extended delays in the administrative process
• Congressional action on specific issues like banking
• Continued status quo with state-level regulation and federal prohibition

2. Maintain Robust Compliance Systems

Regardless of rescheduling outcomes, maintaining detailed financial records and strict regulatory compliance remains essential. Businesses should document their operations meticulously, particularly in areas that may be scrutinized under 280E such as cost of goods sold calculations.

3. Engage in Advocacy Efforts

Industry participation in advocacy efforts can influence policy outcomes. "This is a movement as much as an industry," Smith emphasizes. "Businesses that engage with organizations like NCIA can help shape the policies that will govern the future of legal Cannabis."

4. Optimize Current Tax Strategies

While awaiting potential 280E relief, businesses should work with Cannabis-specialized accountants to implement appropriate cost accounting methodologies that maximize deductible expenses within the current regulatory framework.

5. Monitor Political Developments Closely

The rapidly evolving political landscape requires constant monitoring. Key indicators to watch include:

• Appointments to relevant agencies like the DEA
• Statements from administration officials on Cannabis policy
• Congressional hearings related to banking or controlled substances
• Court decisions that may impact administrative proceedings

Conclusion: Navigating Uncertainty While Preparing for Change

The Cannabis industry has repeatedly demonstrated resilience through regulatory uncertainty and political shifts. While the path to federal reform remains complex, the direction of travel continues toward expanded recognition of Cannabis's legitimate medical applications and economic contributions.

"Despite the current procedural delays, we're closer than ever to meaningful federal reform," Smith concludes. "The scientific evidence supporting rescheduling is overwhelming, public support continues to grow, and the economic case for reform becomes stronger with each new state market that comes online."

For Cannabis businesses and their financial advisors, the coming months and years require vigilance, adaptability, and strategic foresight. By understanding the complex political and regulatory dynamics at play, businesses can position themselves to thrive regardless of how federal policy evolves in 2025 and beyond.

[Click here to listen to our conversation with NCIA CEO Aaron Smith.]